LM Investment Management - Lack of confidence

[Exadviser]

I'm a little hesitant to write much here for personal reasons, but I have read all of the thread, and share people's anguish.

Whilst searching the web for more on this situation, I came across this article which I haven't seen posted here yet, and it may be of interest to the people viewing this thread.

http://www.afr.com/p/personal_finance/smart_money/managers_throw_lifeline_eb2zEymF9gN0fdvMp7o1JK

and this much older one where LM comment with their typical BS.

http://www.stuff.co.nz/sunday-star-times/business/3644718/Trying-wait-for-LM-investors

I'll be checking back here regularly and perhaps write more as, when and if confidence increases.

 

[ASICK]

LM is late with the LMFMIF financials

https://connectonline.asic.gov.au/R...t mortgage income fund&searchType=OrgAndBusNm

LM is late with the fund's return - bad news always travels slowly. Keep an eye out as the days pass and see when they get a-round-tuit.

Note the prevous name for the fund: LM Mortgage Income Fund

I guess the addition of the word "First" must have given punters more comfort, but it seems the original name actually more properly describes the fund as it exists today.

 

[ASICK]

Trilogy's Pacific First Mortgage Fund Crashes Year-on-Year!

An investor in the PFMF reports being told by Balmain Trilogy that the unit price in the fund is now $0.13 as at 30 June 2012. That'd make a 56% loss of value since Trilogy took over (based on $0.48/unit as at 30 June 2009 -> $0.13/unit + $0.08/unit paid back): http://www.moneymagik.com/

That's a loss for the 2012 year of:
$273m (2011) - about $17.74m redemptions - about $115m (2012)
= about $140m (or 51%)

Remember, Wellington Capital's Premium Income Fund (PIF) lost about $90m from a $200m fund - that's about $45m per $100m of initial value - the PFMF lost about $45m per $100m.

I wonder if $45m per $100m of initial value will be an accurate guide for the losses in the LMFMIF ?

 

[Irishdan]

Don't know whether everyone has seen this but the gall of Drake knows no bounds. This popped up in a gold coast "pay for space" magazine in August

http://www.goldcoastbusinessnews.com.au/article4845/IT IS TIME FOR OPTIMISM: DRAKE.html

 

[ASICK]

http://www.goldcoastbusinessnews.com.au/article4845/IT IS TIME FOR OPTIMISM: DRAKE.html

yep .. pay for space - a place to spruik ! I've noticed (as I'm sure others have) that LM's PR team is active.

but Drake's LMFMIF hasn't delivered up the fund's financial reports to ASIC yet:
https://connectonline.asic.gov.au/R... mortgage income trust&searchType=OrgAndBusNm

Neither has Trilogy's Pacific First Mortgage Fund:
https://connectonline.asic.gov.au/R...ic first mortgage fund&searchType=OrgAndBusNm

Neither has Trilogy's Cape Parks Fund:
https://connectonline.asic.gov.au/R...chText=cape parks fund&searchType=OrgAndBusNm

Neither has Trilogy's Healthcare REIT:
https://connectonline.asic.gov.au/R...rilogy healthcare reit&searchType=OrgAndBusNm

I'll bet they all carry very bad news - we already know that the PFMF lost 51% of its value over the past year and 56% overall since Trilogy took over fund in July 2009:
http://www.moneymagik.com

I'll be surprised if Trilogy's Healthcare REIT has any money left for investors with maybe the bank in a bit of trouble with the sad looking security asset described by the selling agent as "funky":
http://www.moneymagik.com/analysis_REIT.php

And the Cape Parks Fund? Heck, who knows - but I'll sure it'll be something to discuss at length:
http://www.moneymagik.com/cape_parks_fund.php

 

[Irishdan]

LM have released financials for 2 of the funds. The cash performance fund that does't have enough in it to buy a decent house and the Australian Income fund which has assets of just under 28m.
Showed a small profit of 114k and delivered 4.5% roughly to unit holders after fees of 1.5% were deducted.

Basically these two funds are that insignificant however a statement made on page 3 of the directors report I think is significant regarding likely developments and future results

"Further information on likely developments in the operation of the scheme and the expected results of those operations has not been included in this report because the repsonsible entity believes it would be likely to result in unreasonable prejudice to the scheme"

FMIF and feeder funds can't be too far away can they?

 

[ASICK]

http://www.financialstandard.com.au/news/view/23168892

Trilogy make the run - meetings called.

Geez, didn't Drake see this coming? If he doesn't pull LM's management fee down to 1.5%, stop LM's other fees, and undertake to wind up the fund ASAP, it'll be all over for LM. Clearly Trilogy's record hasn't scared investors - my guess is that they're more scared of LM.

As I've said before, Citypac made a bad choice when it didn't reduce its fees and give undertakings to sort out investor concerns, LM will probably make the same mistake - and then LM investors will have a chance to see what we've experienced in the PFMF: http://www.moneymagik.com

From what I saw in the news article, the spiel is the same as for the PFMF - riding in on investor discontent, making all the promises, making the same crap promises about 'no fire sales' - ah phooey, the PFMF lost 51% last year alone with that mob - I think investors should get rid of LM if it doesn't change its ways, but taking on Trilogy ... yuk !

Still, it's LM investors' money - they're entitled to make their own mistakes.

 

[ASICK]

Trilogy Funds Management - an alternative RE?

http://www.financialstandard.com.au/news/view/23168892
"Overseas Demand Replacement of LM as RE"

We should keep in mind that these articles about Trilogy are not from the ether - they're media releases. When Trilogy ran for the PFMF they used Shed Media:
http://www.shedmedia.com.au/portfolio-item/trilogy-funds-management/

Both of LM and Trilogy will probably use media companies.

A couple of excerpts from the Financial Standard "article":

"... All these investors want LM out; they want openness, a simple, professional wind-down of the funds and return of their capital," said Bacon."

"The proposal to unitholders suggests an orderly wind-down (but no fire sale) of the Main Fund's assets and then capital distributions to investors in the Main Fund and through it to the two feeder funds - the Wholesale Fund and Currency Fund."

Of course, these are words investors love to hear: "orderly wind-down" - "no fire sale" - "capital distributions", but there is a stark reality, and that's the once dubbed "fire sale" from the growth days is the norm in the current market - there's no great competition for probably all of the assets in funds like the LMFMIF and PFMF - just about every sale is a fire sale - to my mind, a simple fact of life - and it won't matter a hoot who's the manager - it'll depend solely on market demand, something that does not exit at this time.

Balmain Trilogy defined a fire sale so it's very easy to see if Trilogy made any fire sales (yes, they said no fire sales in the PFMF too!) - here's the definition: http://www.moneymagik.com/fire_sale_defined.mp3

Here's an example of an offer and subsequent sale:
http://moneymagik.com/the_entrance_in_one_line.php
What do you think? Was that a fire sale? (as defined by Balmain Trilogy)

Here's an example of offering up the fund's most valuable asset:
http://moneymagik.com/martha_cove_ad.php
How about this one? Contemporaneously with the highlighting of the ad on www.moneymagik.com, the ad was withdrawn.

Fund value (including capital returns to investors) is a reflection of asset value and actual sale values. The PFMF lost 51% in the 2012 financial year - overall since Trilogy took over the PFMF in July 2009, the fund has lost 56% of the value started with - City Pacific lost 52%. As a % of starting value, Trilogy lost MORE than City Pacific (yes, I know the value lost under City was greater, but if the positions were reversed, it's my view that City Pacific would have still performed better).

Then there's the capital distributions - ah! the punters loves this - we heard all this crap from Trilogy when they run for the PFMF - while there's a number of media releases (which I'll find an post here in due course) spruiking hope, I've complied the following as a record of Trilogy spruiks while RE of the PFMF:
http://www.moneymagik.com/yardy_yardy_yah.php

The LMFMIF (like the PFMF) has debt - and when things go pear-shaped, debt has as least three nasty aspects to it: (1) the lender exerts control over the fund, (2) the lender stands first in line, and (3) the interest on debt is nearly always higher or much higher than one could earn with the same value of money.

Punters want capital repayments, so will want to be paid out in preference to the debt, and sometimes the lender will permit this with quite strict conditions - if this happens, it's my view that the RE would be quite pleased - because if the debt is paid down first, punters will be screaming for the return of capital, that means a rapidly reducing fund value, the very value on which the RE's fees are calculated.

On the other hand, if punters are paid out first (at the start), the RE isn't pressured by members to write down the debt, and there's a nice little fee earner in that that static value of facility debt. Of course, I say "at the start" because sooner of later the lender will become increasingly concerned and exert its right to have more and more of monies derived from sales directed to the repayment of the facility (in preference to repayment to members) - I think there will always be such a time.

Here's an exchange between an investor and Andrew Griffin at the Sydney Info session in November 2010 about repayment of the bank debt - listen to how Griffin justifies paying investors ahead of the bank:
http://www.moneymagik.com/show_of_hands.mp3

You'll hear investors clapping after Griffin's spiel - I couldn't imagine that any business-minded person in the current climate would clap to support maintenance of debt - but there you have it.

In over THREE YEARS as manager of the PFMF, Trilogy returned only $0.0875/unit and even at 1.62% fee (1.5% management fee + .12% fund expenses) racked up about $17m in fees (investors were repaid only $78m) - as a %, the management fee represented 22% of the return to investors.

Trilogy represented $0.04/unit every April and October with additional payments in between:
http://www.moneymagik.com/re_cash_balance.mp3
(Andrew Griffin of BT at the Sydney Info Session in November 2010)

Trilogy is down to paying member $0.0075 every six months. The payments are listed here:
http://www.moneymagik.com/yardy_yardy_yah.php

Then there was the representation about the 'targeted' $295m to be repaid by 31 October 2012:
http://www.moneymagik.com/295_million.mp3
(Andrew Griffin of BT at the Sydney Info Session in November 2010)

The $295m did not include the majority of Martha Cove (valued at about $86m as at 29 February 2012):
http://www.moneymagik.com/disgorge.mp3
(Andrew Griffin of BT at the Martha Cove Info Session in April 2011)
Note the words, "get rid of", "disgorge".

However, just weeks away from the target date, Trilogy is $216.20m short of the $295 - and Martha Cove isn't included - However, the WHOLE fund is valued at about $108m now ($115m ($0.13/unit * 887m units) - $6.6m repayment to investors after 30 June 2012) - That's less than the $110m Griffin spoke to as being most (not all) of Martha Cove in April 2011 !

Trilogy hasn't spoken to the $295m in OVER ONE YEAR now - so much for openness. I would think there's probably thousands of investors out there that still haven't clicked to the reality that they're not going to get the spruiked $295m by 31 October 2012 - still many who don't realise that, under Trilogy, the fund has lost 51% over the past year - and why? well, because they don't have the return yet - and as of yesterday, just like the LMFMIF, Trilogy hadn't filed the PFMF's 2012 return with ASIC.

As of April 2011 the future, according to Griffin, looked like this:
$295m repaid to investors by 31 October 2012 + $110m for Martha Cove
Total $405m

The real world seventeen months later:
as at 10 October 2012, a fund value of about $108m + about $77.6m repaid to investors
Total $185.6

So, the "orderly wind-down", while sounding like some clinic, methodical, value-maximising process is a lot of crap - it's really "getting rid" or "disgorging" assets - and some of that might include sales "in one line" - and, if it's anything like our experience in the PFMF, there'll be a lot of spruiks, and there'll be many, many disappointments.

Then may be the lure of "litigation" - http://www.moneymagik.com/litigation.php

In the case of the PFMF, at 1 September 2010 it was "more than $300, more than enough", in November 2010 reduced to "a hopeful $100m", on 7 December 2010, "could exceed $100m", "perhaps even more", by April 2011, "an utopian result of $100m", and by April 2012 an actual claim for $60m against five ex-directors of Citypac.

Since then, they seem to have discovered that one of the directors had died two years ago - he was discontinued against, but Trilogy wasn't "open" about that discontinuance. Now we have Phil Sullivan alleging that there's no insurance because, among other things, Trilogy pay the premiums on run off policy.

It's all on http://www.moneymagik.com - have a read.

Then there's Trilogy's Healthcare REIT - After spending nearly $500k of investors money, Trilogy gladly accepted $3,555,000 from new investors for units at an issue price of $1.00 per unit (3,555,000 units) when those units had a current value of only $0.63 (2009).

Trilogy did better in 2010 when it receipted $129,600 for unit with an issue price of $1.00 (129,600 units) when those units had a current value of only $0.60 - The massive and immediate loss of $1,315,350 suffered by the new investors in 2009 mitigated the loss for the fund in 2009 (hence only a $0.03 drop).
http://www.moneymagik.com/analysis_REIT.php

Then there's the Dee Why fiasco - have a read of all the facts on the Dee Why fund and the Heathcare REIT on: http://www.moneymagik.com/

An investor in that fund sent us a heap of documents - I'm sure that members will find the published documents to be more than interesting - MDRN Investments Limited (now known as Trilogy Funds Management Limited) sure had some interesting associations back in ol' days - like Laton Capital and Laton Corporate Finance - have a read, I'm sure you'll be intrigued.

and Philip Ryan's breach of trust at:
http://www.moneymagik.com/trilogy1.php

The front page is quite long and the comment about the two funds, Philip Asley Ryan, the genesis of Trilogy, and how Trilogy became manager of the PFMF is further down the front page.

I fully realise that much of this is circular, but I think it's necessary to continually remind investors of these REs' pasts. When these "raiders" (for want of a better word) come to the fund, they don't come with full disclosure, they come spruiking all the things investors want to hear, "no fire sales", "orderly wind-down", "return of capital" - but it's all about fees for them - it's business, plain and simple.

Be careful - the spruik and reality may very far apart indeed. I think if Trilogy is the option, then it's better to try to come to a deal with LM - let them get the fund out of the mess they've put it in - let LM give you want you want - and if they don't, get together and seek a court order to wind up the fund.

Sadly, if all the foregoing isn't enough, there's more to complain about Trilogy - sometimes I wonder how it's possible - but to date, every time I think I've reached all there is to write about, another issue of interest arises - such is life when one is minded to delve into Trilogy Funds Management Limited.

 

[ASICK]

In reference to my previous post:

"Since then, they seem to have discovered that one of the directors had died two years ago - he was discontinued against, but Trilogy wasn't "open" about that discontinuance. Now we have Phil Sullivan alleging that there's no insurance because, among other things, Trilogy pay the premiums on run off policy."

sorry, that should have been "Trilogy DIDN'T pay the premiums on THE run off policy."

These are the only references I could find in relation to insurance and the ex-City Pacific directors:

From the 2009 Financial return, No Payment by Trilogy, "INDEMNIFICATIONS & INSURANCE OF DIRECTORS AND OFFICERS - FORMER RESPONSIBLE ENTITY - We understand the former responsible entity paid an insurance premium during the financial year in respect of a contract insuring each of the officers of the former Responsible Entity. The amount of the premium is, under the terms of insurance contracts, confidential. The liability insured includes costs and expenses that may be incurred in defending civil or criminal proceedings that may be bought against the officers in their capacity as officers of the former responsible entity or related body corporates."
http://moneymagik.com/PFMF_return_jun_2009.pdf

From the 2010 Financial return, No Payment by Trilogy, "INDEMNIFICATIONS & INSURANCE OF DIRECTORS AND OFFICERS - FORMER RESPONSIBLE ENTITY - We understand the former responsible entity paid an insurance premium during the previous financial year in respect of a contract insuring each of the officers of the former Responsible Entity. The amount of the premium is, under the terms of insurance contracts, confidential. The liability insured includes costs and expenses that may be incurred in defending civil or criminal proceedings that may be bought against the officers in their capacity as officers of the former responsible entity or related body corporates."
(note: the only difference in the text from 2009 to 2010 is the inclusion of the word "previous" immediately before "financial year in respect of a contract insuring each of the officers ...")
http://moneymagik.com/PFMF_return_jun_2010.pdf

From the 2011 Financial return, No Payment by Trilogy - Nothing mentioned.
http://moneymagik.com/PFMF_return_jun_2011.pdf

Since run off policies are required to be maintained and since non-maintenance results in the termination of the original indemnity policy, then, in certain circumstances (say, as those in the PFMF as alleged by Phil Sullivan (ex-CEO Citypac)), investors will certainly lose out on a chance to recover losses.

Here's information on run off policies: http://abcpro.com.au/LinkClick.aspx?fileticket=si6MlKm_afI=&tabid=89

The information on run off policies might be an eye-opener for some. After all, it could be the case that many investors have never heard of them. There is no doubt that Trilogy should/ought have been aware that they possibility existed that a run off policy was required to be maintained to ensure the original directors' indemnity could be acted upon, but Trilogy didn't even allude to such run off cover in the excerpts from the PFMF's financial reports (disclosed above).

 

[Irishdan]

http://www.financialstandard.com.au/news/view/23168892

Trilogy make the run - meetings called.

Geez, didn't Drake see this coming? If he doesn't pull LM's management fee down to 1.5%, stop LM's other fees, and undertake to wind up the fund ASAP, it'll be all over for LM. Clearly Trilogy's record hasn't scared investors - my guess is that they're more scared of LM.

As I've said before, Citypac made a bad choice when it didn't reduce its fees and give undertakings to sort out investor concerns, LM will probably make the same mistake - and then LM investors will have a chance to see what we've experienced in the PFMF: http://www.moneymagik.com

From what I saw in the news article, the spiel is the same as for the PFMF - riding in on investor discontent, making all the promises, making the same crap promises about 'no fire sales' - ah phooey, the PFMF lost 51% last year alone with that mob - I think investors should get rid of LM if it doesn't change its ways, but taking on Trilogy ... yuk !

Still, it's LM investors' money - they're entitled to make their own mistakes.

Sadly Asick, Drake would have seen it coming but his ego and the fact that the fees from this fund are what keep LM management going have clouded his judgement all along. The fund should have been liquidated by the "responsible" entity over 2 years ago when the default levels of borrowers skyrocketed. Instead they decided to amend constitution to allow for increased LVR's to accommodate capitalisation of interest on loans in default thus in turn preserving exorbident fee income. I don't think Trilogy are any better either... WIND IT UP

 

[ASICK]

http://www.financialstandard.com.au/news/view/23201552

and here we go ... it's on !

""Further, our management fees for the First Mortgage Income Fund have been historically low, averaging 1.41%. These assets need to be worked through, not simply sold down, and certainly not to be offset by a rapidly diminishing unit price as proven by previous Trilogy takeovers," said Drake.

Far from offering any magic solution to investors in the funds, Drake compares the promises being made by Trilogy to those made to investors of City Pacific. The result of those promises saw the unit price slashed from 61 cents in December 2008 to 13 cents in June 2012.

"Investors in the LM funds would not want to see Trilogy achieve the same disastrous result for them", Drake concluded."

LM has its problems, among other things, ITS FEES! but I'm sure readers will recognize my concerns in the last paragraph of the excerpt (highlighted in red).

The first thing Trilogy does is hide their funds' accounts from all except members of the funds (with the exception of the PFMF which is on Balmain Trilogy's site). The funds raided from APGF are off the radar now, whereas with APGF, the funds financials were fully exposed to public glare on the website: not so with Trilogy or CYRE Trilogy. Even the Trilogy Cape Parks Fund doesn't show its financials on its (Trilogy's) website - if it would have for 2011, in my view, investors would have run away.

It's not that I just don't like them, I don't trust them.

PS. I should add that it's a common ruse to spruik substantial support whether it's there or not - in many cases it might be no more than a mirage - I wouldn't be surprised if many a battle had be won by the side prepared to delude the other into believing a much stronger force stands in oppostion.

I think Mr. Drake should really consider changing LM's fee structure (DOWN) and that he should cause LM to wind down the funds, otherwise he might be surpised that investors might oust LM and choose Trilogy, even with the "baggage" Trilogy brings to the fray - I think IrishDan makes good points. Citypac read investor sentiment the wrong way, LM has a chance, but it might just follow along behind Citypac, and then LM investors may just follow along as we have in the PFMF.

 

[Irishdan]

http://www.financialstandard.com.au/news/view/23201552

and here we go ... it's on !

LM has its problems, among other things, ITS FEES! but I'm sure readers will recognize my concerns in the last paragraph of the excerpt (highlighted in red).

It's not that I just don't like them, I don't trust them.

PS. I should add that it's a common ruse to spruik substantial support whether it's there or not - in many cases it might be no more than a mirage - I wouldn't be surprised if many a battle had be won by the side prepared to delude the other into believing a much stronger force stands in oppostion.

I think Mr. Drake should really consider changing LM's fee structure (DOWN) and that he should cause LM to wind down the funds, otherwise he might be surpised that investors might oust LM and choose Trilogy, even with the "baggage" Trilogy brings to the fray - I think IrishDan makes good points. Citypac read investor sentiment the wrong way, LM has a chance, but it might just follow along behind Citypac, and then LM investors may just follow along as we have in the PFMF.

You are right Asick,

Pt 1. Investors and financial advisors have been telling LM for years that the fees were too high but it fell on deaf ears as the fund was frozen no one could do much. Now drastic action is resulting that will ultimately hurt investors and destroy LM

Pt2. Your point re spruiking onsiderable support can also be levelled at Drake. He has said on numerous occasions over the last 3 years that they have solid plans in place to get liquidity back into the fund and that there were financial advisers ready to direct large sums back into the fund

Pt3. It's not that I just don't like them, I don't trust them.. Drake included

 

[ASICK]

... Instead they decided to amend constitution to allow for increased LVR's to accommodate capitalisation of interest on loans in default thus in turn preserving exorbident fee income. I don't think Trilogy are any better either... WIND IT UP

IrishDan, you seem to have good resources - are you able to post a copy of the recent constitutional amendments made by the manager? If what you say is correct, how could such amendments possibly be in investors' best interests? On the face of it, such amendments seem to be increasing risk rather than giving protection to what's left of investors' capital. Of course accruals (interest receivables) can be nice little earners - all from the ether - I used to think that only the Reserve Bank could do that little trick.

 

[Irishdan]

Asick, the change I referred to occurred a couple of years ago when all the loans were around the 66% ceiling that was previously the max LVR. From memory at that stage around 70% of loans were technically in default at the 66% LVR level. It was around this time I started agitating to the THEN directors including Drake to sell up,Wind up but copped threats, silent treatment etc.

I think someone else has also referred to it earlier in this thread

 

[ASICK]

Thanks IrishDan.

Trilogy published the PFMF's 2012 return on its website.
http://www.balmaintrilogy.com.au/pdf/BTI 5125 PFMF Annual Report 2012_web.pdf

The highlights:

1. a loss in value of 51% for the year.
2. unit price down to $0.13
3. a loss of about 54% on an investment made in "King Tide", Gold Coast. The unit has been sold but they didn't disclose the sale price. Conincidently, that's the same unit block which Trilogy (as fund RE) is suing a number of ex-directors of City Pacific over. http://www.moneymagik.com/
4. Trilogy's fee $3,306,259 - total $16,579,772 for the three years Trilogy managed the fund.
5. That the fund is paying for the legal action against the directors even though Trilogy said (in part, at the Sydney Info Sesssion) - http://www.moneymagik.com/litigation.mp3
6. The accompanying letter: http://www.balmaintrilogy.com.au/pdf/BTI 5125 Unitholder Letter.pdf
Not one word about the $295m 'target' spruiked from 1 September 2010 until August 2011 - since then, not a word. Just another disappointment among many: http://www.moneymagik.com/yardy_yardy_yah.php
7. No communications from BT's ICC (Investment committee comprising fund members selected by some accounting firm).
8. The fund's assets at Martha Cove, Victoria dropped from $86m as at 29 February 2012 (fund rg 45) to about $39m as at 30 June 2012 - Trilogy says the drop is refective of the $ value of expressions of interest received.

Since Trilogy took over the fund's management, the fund has lost 56% of its value - it's really a disaster. I certainly wouldn't wish such an outcome to befall members of the LMFMIF - If LM comes in with such a loss, seek a liquidator to wind up the fund - it's the sensible way to see the end to these messes.

 

[Irishdan]

Still no sign of financials on website for FMIF or the feeder funds although the reports for the "petty cash" type funds were promptly put on there.

MEMO to Peter Drake, we have a right to know how poorly you have managed our money,

No sign of BIS Schrapnel report either, might ring them and see if one has even been requested

My bet is Auditor won't sign off on FMIF or feeder funds as being a viable going concern

 

[ASICK]

"You're Just Too Good to be True, Can't Take My Eyes Off You"

Having lost their latest raid on a APG fund, CYRE Trilogy have their eyes on LM:-

http://www.trilogyfunds.com.au/site...ency (NOM + EM)_INTERNAL PAGES_ WEB_FINAL.pdf

http://www.trilogyfunds.com.au/site...(NOM + EM)_INTERNAL PAGES_ 2 COLOUR_FINAL.pdf

http://www.colonialfirststate.com.au/prospects/LMI0007AU.pdf

some interesting reading - clearly there'll be heaps to comment on in the coming days.

http://www.youtube.com/watch?v=PzpWKAGvGdA

 

[ASICK]

No Related Party Loans - But, Related Party Transactions are OKAY!

To start the ball rolling -

Trilogy says on page 14 (in part), "No related party lending - Trilogy will not lend money from the FMIF or the Fund to any related entity of Trilogy or any of their associated companies, directors, management, friends or family members."

Of course, Trilogy is very careful with its language,"No related party lending" because if one notes (still on page 14), Trilogy goes on (in part), "Project Management - Where appropriate, CYRE Trilogy will engage project managers on behalf of the FMIF, including Knight Frank and Avive Asset Management Pty Ltd (a related party of CYRE Trilogy) ..."

Investors should never kid themselves, so many of these managers want a bigger slice of the pie - a buck here, a buck there ... jobs for the relatives ... all at investors' expense. They criticise LM about its fees, and yet Trilogy is telling members that they'll make some extra money on the side, right from the get-go (Whatever makes a relative happy will make CYRE Trilogy happy, and whatever makes CYRE Trilogy happy will make Trilogy happy - get the picture?).

They wouldn't dare say "no related party transactions" because that'd limit the income stream they have their corporate "eyes" on - so, Trilogy says "no related party loans", but "related party transactions" are okay - sometimes is so very easy to make money out of disgruntled investors, so darn easy.

It's worth pointing out that Avive Asset Management Pty. Ltd. (ACN 157 910 828) was only registered on 20 April 2012 - geez, that's reminds me of a company called Property Solutions & Advisory ("PSA") which resides in Balmain Trilogy's offices (oh, and the offices of Balmain themselves). Goodness sakes, another construct to make the bucks! A Google search reveals NOTHING about this entity in the market place, not even a phone number.

What's astounding is that Trilogy says its going to do wonderful things for FMIF investors, but opines, (on page 11), in part, that " ... the FMIF’s heavy concentration of coastal (tourist-town) property development mortgage loans, coupled with high average LVRs, made the FMIF, and therefore the Fund, particularly vulnerable to the global financial crisis." - it's the market that the mob down at Trilogy are miserable at recovering asset value in - remember, under Trilogy, the PFMF lost 51% of its value in the past 12 months alone.

Heck, they even lost around 50% of a unit Trilogy purchased (on behalf of the PFMF) while manager of the fund. They sold the unit after 30 June 2012, but DID NOT DISCLOSE HOW MUCH THEY SOLD IT FOR ! Given they gloat when they can, I assume the sale was a disaster.

If there's anything that Trilogy is, Trilogy is predictable - all the crap fed to members of the (then) CPFMF is much the same as fed to the FMIF feeder funds.

I've looked through the EM and it's got heaps to comment on - this'll do for a start.

 

[ASICK]

In its EM, Trilogy discloses (on page 12) a number of items which Members have a number of reasons to be dissatisfied with LM’s performance – I'll deal with a number of them one-by-one:

Trilogy says, (I'll call this Ground 1), “The decline in the net asset value per class of FMIF unit in which the Fund invests from $1.00 to $0.73” - Yes, that's a hit, 27% - but consider Trilogy has lost 56% of the value of the PFMF in roughly the same time frame – in any event Trilogy lost 51% of the fund's value in the past year.

To put it in perspective, Trilogy expresses the loss thus, “As at 30 June 2012, the gross assets of the Fund were valued at $136.64 million (a decrease of $168.61 million from 30 June 2011)”
http://www.balmaintrilogy.com.au/pdf/BTI 5125 Unitholder Letter.pdf

See, only a year ago, the PFMF was valued over $300m, and now it's just a tad over $100m! Yes, I know you're all terrified of LM, but consider under Trilogy's management the PFMF lost $168.61m in ONE YEAR!

So, if you're all thinking that Trilogy is a great manager, then why the massive loss in the PFMF? Okay, so you say, it can't be Trilogy, there's just too good, so it must be the market – huh? So, the PFMF's losses under Trilogy are the market, then why isn't LM's losses? Don't forget Trilogy's Healthcare REIT which also suffered massive losses over these past years:
http://www.moneymagik.com/analysis_REIT.php

Of course, as previously posted, Trilogy averred, “In Trilogy’s opinion, the FMIF’s heavy concentration of coastal (tourist-town) property development mortgage loans, coupled with high average LVRs, made the FMIF, and therefore the Fund, particularly vulnerable to the global financial crisis.”

Trilogy has some experience with those 'coastal (tourist-town) property development mortgage loans' down at The Entrance in NSW – an asset was sold-off in one line. A number of shops were 'gotten rid of' or 'disgorged' (as BT says here http://www.moneymagik.com/disgorge.mp3 ) Here's the advertisement:
http://moneymagik.com/the_entrance_in_one_line.php

Of course, Trilogy and BT each speak to no fire sales, but get real – the market price these days is a price we'd normally associate with fire sales, and the massive 56% losses suffered by the PFMF since Trilogy took over the fund in July 2009 is testament to that.

Trilogy says, (Ground 2), “The excessive level of fees being paid to the manager of the Fund and the FMIF equating to 4.93% of FUM in 2011 on a look through basis;” - dearly me, not the old 'look through basis' – that's a new term coming out of Trilogy, maybe they're trying to sound techo?

Trilogy also says, “And in spite of all of this, LM still paid management fees at the rate of 2.50% p.a. of funds under management (FUM) of the FMIF and 2.43% p.a. Of the FUM of the Fund. This equates to a Fund management fee of 4.93% of funds under management in 2011 on a look through basis.” which is notated thus:

Footnote 10: LM’s Liquidity Strategy - LM First Mortgage Income Fund dated 22 June 2012. This is expressed to be calculated on funds under management which Trilogy has taken to be the net assets of each fund.”

Well, what can one say? I for one cannot see any connection between the issues raised in Ground 2 and Footnote 10 - Sounds like Trilogy stuffed up again and (nearly) doubled the fee – to my mind, it works for Trilogy, but it's dead wrong! There's only one fee, and that fee is based on Funds Under Management (as in the PFMF which Trilogy knows all so well about how the fee is calculated – over $3.3m in fees for delivering a $168.61m LOSS!).

I think it could be that Trilogy meant one of the values (perhaps the first, or maybe the second, who knows what's in their corporate "mind") should have been Net Assets and the other FUM - the inference being that there's a fee charged on FUM and another on Net Assets and they stuffed up the text: it doesn't matter if it was the case, it'd be nonsense anyway.

Since FUM is the same as Funds Under Management and since FUM included DEBT, FUM is NOT the same as Net Assets (which excluded DEBT) – actually, I would have thought Trilogy would have known that full well, but the folk at Trilogy are prone to make the odd mistake now and then – it's an oppps, but it suits Trilogy because it probably scares the pants off PFMF investors and makes Trilogy look like a good deal (which, in my view, they are most certainly not).

Trilogy says, (Ground 3), “The ongoing suspension of Fund distributions” - I know that investors want their income distributions – and my guess is that Trilogy knows that too – and the spruik about distributions was the same when Trilogy run for the PFMF, but the reality, just like in the PFMF, there is NEVER going to be further income distributions because of the massive losses suffered by the LMFMIF, and it DOES NOT MATTER WHICH MANAGER RUNS THE FUND – get real, distributions of income are NO MORE.

Trilogy has run the PFMF for over three years now and PFMF members have not received one cent in income distributions - but you guessed it - even with the massive losses suffered by the fund, many investors remained hopeful that they'd receive income distributions - unbelievable!

Trilogy says (Ground 4), “The ongoing failure to satisfy redemption requests from Members;” - ah, Trilogy has llots of experience on this point. It was a gripe PFMF investors had too – after all, it's normal, everyone's peeved and they want back what's left of their respective investments. But Trilogy only paid $0.04/unit only after FOURTEEN MONTHS of taking over the fund – and in OVER THREE YEARS have only returned $0.0875/unit! And the spruiks just kept on coming:-
Here's the list: http://www.moneymagik.com/yardy_yardy_yah.php

Sorry about the prolixity, but there's heaps to get through. There's three more points which I'll deal with at another time. I was expected some other postings from other members, but since they haven't come up, I decided to keep on keeping-on.

Happy reading.

 

[ASICK]

In its EM, Trilogy discloses (on page 12), in part, “The Deutsche Bank Loan facility had an outstanding balance of $53.8 million as at 31 December 2011 (although, based on recent correspondence from LM, this has been reduced to $33 million). The interest rate charged on this loan is at least 15% p.a. (there was provision to increase the interest rate to 18% p.a. if the loan was extended from 30 June 2012, however Trilogy has not been able to confirm whether the increase has occurred).”

Yes, the interest rate is high, but it'll probably have to be paid off before any distributions of capital will be able to be made. The PFMF had a LVR of 10% on the CBA facility – but this didn't stop Trilogy paying out investors while maintaining debt. Debt is great for managers grabbing a fee on FUM because FUM includes debt.

An investor at the fund's Sydney meeting tried to argue that the debt should be paid off to reduce the costs for investors, but Andrew Griffin (of Balmain Trilogy) cited BT's (post facto) authority for making payments to investors ahead of the bank as a show of hands at that information session!
http://www.moneymagik.com/show_of_hands.mp3

In the end the LVR covenant kicked in and the payments to investors dried up and a nice fee was made by Trilogy ($3.3m in the past year alone – in consideration of Trilogy handing us of loss of over half the 2011 value of the PFMF).

Trilogy says on EM page 13 (in part), “Regular reporting - Trilogy will make information regarding the status and performance of the Fund and the FMIF which it receives in its capacity as a unitholder available to Members and will administer and manage the Fund on a fully transparent basis.”

I don't think anyone in the PFMF would say that Trilogy is a transparent manager – yes, it complies with its statutory obligations, but that's about where it ends. Just as an example is the much touted $295m repayment of capital to investors of the PFMF – Trilogy spruiked the $295m until August 2011 and then fell silent. The latest 2012 return and accompanying letter made no mention of the $295m.

They used it and then discarded it: a desiccated carrot of no further use.

Of course, Trilogy (if it becomes manager of one or both of the feeder funds) isn't going to receive any more information about the FMIF's state of affairs than any other unitholder in the FMIF – but it doesn't stop them spruiking anyway.

Trilogy says on page 13 (in part), “Independent and experienced responsible entity - Trilogy has significant expertise and experience in the funds management sector and will use its influence as a 23% unitholder in the FMIF to oversee the performance of LM as responsible entity of the FMIF. Initially, this will involve convening a meeting of members in the FMIF to replace LM with Trilogy as responsible entity of the FMIF.”

Trilogy's experience? - oh, they don't want to tell investors all about that experience - the list of loser funds grows:

1. Trilogy's Principal Mortgage Mezzanine Mortgages Fund (link updated)
http://www.moneymagik.com/dee_why_new.php
2. Trilogy's Healthcare REIT (link updated)
http://www.moneymagik.com/analysis_REIT.php
3. Trilogy's Pacific First Mortgage Fund
http://www.moneymagik.com/ (link updated)

and of course, one must never forget the experience of the management team:
http://www.moneymagik.com/trilogy1.php

They might seem cheap, but, remember the old adage, “you get whatyou pay for”